Hot Topics

Find the solutions you need by accessing our extensive portfolio of information, analytics and expertise. The IHS Markit team of subject matter experts, analysts and consultants offers the actionable intelligence you need to make informed decisions.

FEATURED EVENTS

Find the solutions you need by accessing our extensive portfolio of information, analytics and expertise. The IHS Markit team of subject matter experts, analysts and consultants offers the actionable intelligence you need to make informed decisions.

The Trade Numerologist: What China’s “Made In 2025” Strategy Means for Global Trade

One of the key chess pieces is in the ongoing US-China trade
spat is a classic Beijing industrial plan. In 2015, China released
a new ten-year program aimed at making and exporting cutting-edge
technologies.

This so-called "Made in 2025" strategy uses a classic cocktail
of government subsidies, state-guided production and tariff
policies, and aims to use state industrial policies to establish
China as the world's dominant high-tech manufacturer by 2049, the
hundredth anniversary of the establishment of the current communist
regime.

For Chinese leaders, it's no longer enough to command markets in
making finished consumers goods like iPhones, shoes and toys.
Beijing wants the country's factories to manufacture the more
lucrative parts that are in the middle of the supply chain, and
develop the next generation of fancy tools, gadgets and weapons.
Importantly, as wages for Chinese workers and other costs increase,
China wants to increase profit margins and increase its overall
prosperity and wealth.

Chinese officials believe their factories are still too reliant
on other countries to supply key intermediary elements of the
production process, such as electronic circuit boards and
semiconductors. Electronic and electrical components were two of
the top three Chinese import categories during the first quarter of
2018.

Top Chinese imports (&change), first quarter,
2018

Electronic components $118.6 billion (+27.5%)

Oil & gas $78.3 billion (+28.6%)

Electric components $46.5 billion (+23.1%)

Ores, slag, ash $34.4 billion (+3.5%)

Optical, medical equipment $23.8 billion (+8.8%)

Cars, trucks $20 billion (+13.1%)

Plastics $17.6 billion (+3.1%)

Organic chemicals $16.4 billion (+13.4%)

Copper $11.7 billion (+23.6%)

Oil seeds, grains $9.7 billion (-0.8%)

China's aim is to become the leading producer of advanced
satellites, electric vehicles, robotics and advanced artificial
intelligence software. The goals of the policy are wide-ranging,
from permitting its private tech companies like ZTE and Huawei to
compete with the likes of Apple and Microsoft, to building up its
military and affirming its presence to the US as a strategy
counterweight in the Pacific rim.

"Beijing's ultimate goal is to reduce China's dependence on
foreign technology and promote Chinese high-tech manufacturers in
the global marketplace," James McBride writes in a recent paper on
"Made in 2025" for the Council on Foreign Relations. As Mr. McBride
points out, China buys 60% of the world's semiconductors but makes
only 13% of them.

Indeed, according to trade data, China is the world's largest
importer of electronic circuits.

Imports of electronic circuits (&change) first
quarter, 2018

China $70.7 billion (+38.9%)

Hong Kong $36.7 billion (+17.9%)

Singapore $14.2 billion (7.4%)

Taiwan $11.8 billion (+21.4%)

Malaysia $8.5 billion (+21.4%)

South Korea $8.5 billion (+5.5%)

US $8.4 billion (+1.7%)

Japan $4.8 billion (+9.3%)

Germany $4.8 billion (+21%)

Mexico $4.1 billion (+18.8%)

Policy scholars refer to the development of these technologies
as the fourth industrial revolution, and it has set off a global
arms race. Germany has a similar plan, in fact, although it's much
less focused on exports and more on technological research.

What the Chinese "Made in 2025" plan will likely mean is an
aggressive expansion of the country's high-tech production and
exports, and a potential evaporation of Chinese markets for Western
tech companies.

The problem for the US and Europe is, in part, that much of what
remains of its manufacturing base is high-tech industrial
production. It's already lost shirts and shoes to China. It can't
afford to lose cars and semiconductors.

A second risk, in the eyes of the West, is security. Washington
and Brussels don't want Beijing getting its hands on key military
applications like drones, lasers and other sophisticated weapons
systems.

US officials name the "Made in 2025" strategy as one of the key
reasons it's waging its ongoing trade war with China. This year, it
targeted one high-tech good, solar panels, with new tariffs.

The two economic superpowers are still trading jabs, and tariffs
on over $100 billion worth of annual trade. Earlier this month,
China announced a new round of tariffs on US imports, putting a 25%
on $16 billion worth of annual imports.

The US is trying to claw back some of what it gave away when
China joined the World Trade Organization in 2001. It had seemed
like a perfect bargain. China was the hot new market, and the West
had dozens of the world's major corporations eager to invest in
Asia.

The deal has paid off in part, because China is a huge market,
and because it has become part of a global supply chain, importing
parts and components to make finished goods.

Chinese imports of electronic components, first
quarter

2009: $45.9 billion

2010: $65.3 billion

2011: $79.1 billion

2012: $80.4 billion

2013: $110.2 billion

2014: $90.6 billion

2015: $92.7 billion

2016: $83.4 billion

2017: $93.1 billion

2018: $118.6 billion

But with blue-chip US companies like Apple, Caterpillar and
General Electric operating the factories in China importing those
parts, and selling their goods there, Beijing has leverage in the
ongoing trade dispute, and a competitive incentive to keep the
"Made in 2025" strategy on track.